Novated Leasing for Contractors
A novated lease is a three-way arrangement between a contractor, a financier and the employer's payroll, where vehicle finance and running costs are deducted through the pay run instead of paid from an ordinary bank account. Contractors paid by PayMe Australia can arrange a novated lease fee-free through PayMe's sister company, Alliance Leasing — there is no leasing fee on top of the standard PayMe payroll fee.
What is a novated lease?
With a novated lease, the vehicle is financed in your name, and the obligation to make the payments is passed to payroll for as long as you are paid through it. Instead of paying the finance, fuel, servicing and registration separately from your own account, the agreed amount comes out of your pay each cycle.
Part of the deduction is typically taken from pre-tax income, which is why a novated lease is treated as a form of salary packaging. Depending on the vehicle and the structure, part may also be taken after tax — commonly called the Employee Contribution Method — to manage fringe benefits tax.
How does a novated lease work through PayMe?
Alliance Leasing, PayMe's sister company, quotes and arranges the lease. Because Alliance Leasing and PayMe are related businesses, PayMe contractors do not pay a separate novated leasing fee — novated leasing is included in the standard PayMe payroll fee.
Once the lease is in place, PayMe sets up the deduction in your pay run and it appears on your payslip as its own line, alongside your taxable wage, PAYG withholding and superannuation. Nothing about your recruitment contract changes: your recruitment company remains your employer.
Use the Example Payslip calculator to see how pre-tax and post-tax novated lease deductions sit on a sample payslip, and read more about salary packaging for contractors.
What vehicle costs may be included?
One of the practical reasons contractors use a novated lease is that the running costs are bundled into a single deduction rather than arriving as separate bills through the year. The exact inclusions are set out in your Alliance Leasing quote.
- Lease finance payments on the vehicle.
- Fuel or electricity charging costs.
- Registration and compulsory third party.
- Comprehensive insurance.
- Scheduled servicing, maintenance and tyres.
Is novated leasing available for electric vehicles?
Yes, and electric vehicles are a common choice for novated leases in Australia because of the FBT exemption for eligible zero and low emissions vehicles. Where a vehicle meets the eligibility conditions — including the vehicle type and the luxury car tax threshold for fuel-efficient vehicles that applied when it was first held — a novated lease on that vehicle can be exempt from fringe benefits tax.
Eligibility is specific. The FBT exemption generally no longer applies to new plug-in hybrid electric vehicle arrangements from 1 April 2025, although transitional rules may apply to eligible existing arrangements. Alliance Leasing will confirm whether a particular vehicle is eligible as part of the quote rather than assuming it is.
A novated lease affects your tax position and your credit obligations. PayMe and Alliance Leasing do not provide personal tax or financial advice — confirm your own position with your accountant or a licensed financial adviser before entering a lease.
What happens between contracts?
The lease is in your name, so it continues if your placement ends — it is the payroll deduction that stops. If you move to a new placement and are still paid by PayMe, the deduction can be picked up again in the new pay run. If you are not being paid through payroll for a period, the lease payments become your direct responsibility, and Alliance Leasing will explain how that is handled for your specific lease.
Some contractors pair a lease with BankIT so there is money set aside for fixed commitments during gaps between contracts.
Novated leasing FAQs
Can contractors get a novated lease?
Yes, where they are paid as an employee through payroll. Contractors placed by a recruitment company and paid by PayMe can arrange a novated lease through Alliance Leasing, PayMe's sister company, with the deduction processed in the PayMe pay run. Finance approval is assessed by the financier.
Does PayMe charge an additional novated leasing fee?
No. Novated leasing is included in the standard PayMe payroll fee of 1.75% of the payment received from your recruitment company. Because Alliance Leasing is PayMe's sister company, PayMe contractors are not charged a separate leasing fee.
Does a novated lease reduce taxable income?
The pre-tax portion of a novated lease deduction is applied before PAYG withholding is calculated, so it reduces the wage you are taxed on for that pay. Where a post-tax contribution applies, that part comes out of your after-tax pay. The overall outcome depends on the vehicle, the lease structure and your income.
Can I keep my novated lease if I change contracts?
The lease is in your name, so it stays with you when a placement ends. If your new placement is also paid through PayMe, the payroll deduction can continue in the new pay run.
What happens to my novated lease between contracts?
While you are not being paid through payroll, the lease payments are your direct responsibility. Alliance Leasing sets out how this works for your lease, and some contractors use BankIT to set money aside for exactly this situation.
How BankIT worksIs novated leasing available for electric vehicles?
Yes. Eligible zero and low emissions vehicles can attract the Australian FBT exemption, which is why EVs are popular on novated leases. Eligibility depends on the vehicle type and the relevant luxury car tax threshold for fuel-efficient vehicles when the car was first held, so Alliance Leasing confirms it per vehicle.
Fee-free EVs for Canberra contractorsFurther information
This page explains how PayMe processes payroll. For the underlying rules, see the official sources below. Nothing on this page is personal tax or financial advice.
Related pages
Not sure which rate or salary packaging options apply to you? Talk to the PayMe team.
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